EU update – May 2020

Earlier this month the EU announced it had put forward a series of measures designed to further strengthen the EU’s framework to fight against money laundering and terrorist financing. An Action Plan for a Comprehensive EU policy on Preventing Money Laundering and Terrorist Financing. This comes after a turbulent few year for a few Member States with cross border scandals and record fines. 

In what now may be an interim measure the European Banking Authority (EBA) has been given new powers to tackle money laundering and terrorist financing across its members.  One primary focus of the EBA is to improve the effectiveness of supervisory action in the financial sector by conducting on-site examinations to assess AML framework across the EU. 

However, this has proven to not go far enough. Although following the EU AML directives, it has long been evident that member states not only interpret specific pieces of legislation differently but there is also inconsistency in how they implement these rules effectively.  And so, the commission’s Action Plan suggests that an EU level supervisory body be introduced to iron out inconsistency in the implementation of these rules that ultimate lead to loopfuls for criminals to take advantage of. It has been suggested that that EBA will take on this role, however many have rightly argued that for this new supervisory body to be effective, they would need to be independent of any current authority.

One particular issue that needs addressing is the number of FIUs still falling short in their obligation to share information with other FIU’s, and most are found lacking in their level of ongoing engagement with the private sector, who are the ones identifying and raising suspicions of criminal activity. Another measure that will be introduced under the Action Plan is an EU support and coordination mechanism.  This mechanism will act as the “host” of a secure channel for FIUs to share information, and will enable members and the commission greater visibility to identify possible patterns and cross-border networks laundering money.

Along with this 6-pillar action plan the European commission also stated its intent to redefine its methodology of identifying high-risk third countries and put forward a new list of such countries. They have acknowledged that this update better aligns its list with that of the FATF, but also calls out that from now on they will use the FATF list as a “baseline” for their own, replicating any FATF additions, but implying that any de-listing will be subject to tougher scrutiny.

It is welcome news that in 2021 we are likely to see the formation of a new empowered EU supervisor, pulling all members into line, and making them accountable for any failings that impact on other members, and ultimately the single market economy.  Yet it is hard to know at this point how this authority’s activity will align or conflict with the work of each’s members regulators, let alone the ongoing work of FATF.

Will the EU start to take action where FATF hasn’t? What impact will this more harmonised set of rules and independent oversight of effective implementation of the EUs AML regulations have on the global economy, and the direction on rediverted proceeds of crime? And perhaps the bigger question is, do we need multiple inter-governmental supervisory bodies? Will this cause conflict and confusion for regulated businesses, or will this lead to a unified and harmonised AML Superpower? 

The European commission has now launched a public consultation with authorities, stakeholders and citizens running until 29^th July, to ensure inclusive discussions of the development of these policies. The outcome of this should be closely watched and highly anticipated.